How to get the best mortgage rate

How to get the best mortgage rate

The information provided offers excellent strategies for improving credit scores and securing better mortgage rates. However, it’s crucial to note that several specific details, terms, and examples (e.g., FICO scores, FHA/VA/USDA loans, Annualcreditreport.com, specific US lenders like Rocket Mortgage, SoFi, Citibank, Freddie Mac studies) are exclusive to the United States.

For a UK audience, the underlying principles remain the same, but the names, organisations, and some regulatory aspects differ. I will now summarise and adapt this information for the UK context.

Here are some searches to gather the necessary UK-specific information:

The advice on improving your credit score is highly relevant for UK mortgage applicants, though some terminology and specific examples differ. Here’s how to adapt it for a UK audience:

 

Improve Your Credit Score (UK Context)

 

Lenders in the UK view your credit report and score as a crucial indicator of your financial reliability. A weaker credit history can lead to higher mortgage rates or even a refusal for a home loan. While there isn’t a single “FICO score” in the UK, the principle is the same: a strong credit profile increases your chances of securing the most competitive rates.

Spending time to improve your credit score can save you thousands of pounds over the life of your mortgage. Here are key strategies for the UK:

  • Make On-Time Payments: Your payment history is fundamental. Consistently paying all your bills (credit cards, loans, utility bills, mobile phone contracts, council tax) on time and in full is the most effective way to build a positive credit history. Setting up Direct Debits can help ensure you never miss a payment.
  • Don’t Use Too Much Available Credit (Credit Utilisation): Your credit utilisation is the amount of credit you’re using compared to your total available credit limit. Most experts recommend keeping this below 30%. For example, if you have a credit card with a £5,000 limit, try not to owe more than £1,500 on it. You can improve your utilisation by paying down balances or, if managed responsibly, requesting a credit limit increase (but only if you don’t then spend the additional credit).
  • Don’t Close Old Accounts: The length of your credit history is a positive factor. If you close your oldest credit card or loan account, it can shorten your overall credit history, which might negatively impact your score. Keep older, well-managed accounts open, even if you don’t use them frequently.
  • Check Your Credit Report for Errors: Mistakes on your credit report can seriously hinder your mortgage application. In the UK, you have three main credit reference agencies (CRAs) that hold information on you:
    • Experian
    • Equifax
    • TransUnion

    You can access your credit report and score for free:

    • Experian: Via their free app or MoneySavingExpert’s Credit Club.
    • Equifax: Via ClearScore (free, updated monthly).
    • TransUnion: Via Credit Karma or MoneySavingExpert’s Credit Club.

    By law, all CRAs must provide you with a free statutory credit report upon request. Check these reports thoroughly for any inaccuracies, such as incorrect addresses, accounts you don’t recognise, or defaults that are no longer valid. If you find an error, contact the relevant credit provider and the CRA to dispute it.

  • Register on the Electoral Roll: Being registered to vote at your current address is crucial for identity verification and helps lenders confirm your residency, positively impacting your credit score.
  • Avoid Too Many Hard Credit Searches: Every time you apply for credit (e.g., a new credit card, loan, or overdraft), a “hard search” is typically recorded on your credit file. Too many hard searches in a short period can make you appear desperate for credit and negatively affect your score. Use eligibility checkers or “soft search” tools offered by comparison sites and some lenders before making a full application, as these don’t impact your score.

 

Consider a Shorter Loan Term (UK Context)

 

In the UK, opting for a shorter mortgage term (e.g., 10, 15, or 20 years instead of the common 25 or 30 years) often results in a lower interest rate. Lenders view shorter terms as less risky because they get their money back sooner.

  • Typical UK Terms: While 30-year terms are popular for affordability, 25-year and even 20-year terms are common. Some lenders may offer terms as short as 5 or 10 years, or extend up to 40 years.
  • Higher Monthly Payments: The trade-off is that shorter terms mean significantly higher monthly payments. Use a UK mortgage calculator to compare the monthly repayments for different terms and ensure you can comfortably afford the higher commitment.

 

Save Up for a Bigger Deposit (UK Context)

 

The size of your deposit (the UK equivalent of a down payment) is a critical factor influencing your interest rate. Lenders perceive borrowers with a larger equity stake in their property as lower risk.

  • Lower Loan-to-Value (LTV): A larger deposit means a lower Loan-to-Value (LTV) ratio. For example, a 20% deposit means an 80% LTV. Lenders offer better rates for lower LTV bands (e.g., 60%, 75%, 80%, 85%, 90%, 95%).
  • No Private Mortgage Insurance (PMI): In the UK, we don’t have “Private Mortgage Insurance” (PMI) like in the US. However, some lenders may charge a “Higher Lending Charge” (HLC) if your LTV is above a certain threshold (e.g., 75% or 80%), though this is less common now. More importantly, a larger deposit gives you access to a wider range of competitive products and can significantly reduce your interest rate.
  • Boost Savings: Consider using a high-interest savings account or a fixed-term savings account (similar to a CD) to maximise your deposit growth.

 

Consider Paying Product Fees / “Buying Down Your Rate” (UK Context)

 

In the UK, this is known as paying an arrangement fee or product fee. Many mortgage products come with an upfront fee that, in exchange, offers a lower interest rate.

  • Fee vs. Rate: You’ll see products advertised with a rate and a fee (e.g., 3.8% with a £999 fee, or 4.0% with no fee).
  • Calculate the Break-Even Point: You need to calculate if the interest savings from the lower rate outweigh the upfront fee over the period you expect to keep the mortgage. A mortgage broker can help with this “cost vs. benefit” analysis. You can usually choose to pay the fee upfront or add it to your mortgage loan.

 

Lock In Your Rate During Underwriting (UK Context)

 

Mortgage rates in the UK can fluctuate frequently, sometimes even multiple times a day. Most lenders offer a “rate lock” or “rate guarantee” once your mortgage offer is issued.

  • Protection: This locks in your interest rate for a specified period (typically 3-6 months), protecting you if market rates rise during the conveyancing process.
  • “Porting” your rate: If you’re moving house, some lenders allow you to “port” (transfer) your existing mortgage deal to your new property.
  • Falling Rates: If rates fall significantly during your lock period, some lenders may allow a “rate switch” to the lower rate, though this is at their discretion and might incur a fee.

 

Get an Adjustable-Rate Mortgage (UK Context)

 

In the UK, these are primarily tracker mortgages or discounted variable rate mortgages.

  • Initial Lower Rates: They typically start with a lower interest rate than fixed-rate mortgages.
  • Tracker Mortgages: The rate is linked to an external benchmark, most commonly the Bank of England Base Rate, plus a set margin. So, if the Base Rate goes up, your payments go up, and vice versa.
  • Discounted Variable Mortgages: Your rate is a discount off the lender’s Standard Variable Rate (SVR), which the lender can change at their discretion.
  • Risk: While they can be cheaper initially, they carry the risk of significantly higher payments if interest rates rise. They are suitable for those who are comfortable with payment fluctuations, expect rates to fall, or plan to remortgage or sell before the introductory period ends.

 

Look Into Government-Backed Mortgage Schemes (UK Context)

 

The UK doesn’t have FHA, VA, or USDA loans. Instead, there are various government-backed schemes designed to help specific groups (often first-time buyers) get onto the property ladder. While they don’t necessarily guarantee lower interest rates, they can make it easier to get a mortgage by reducing the required deposit or offering other forms of assistance. The actual interest rate will still depend on your personal circumstances and the lender’s product.

Common UK schemes (as of July 2025):

  • Lifetime ISA (LISA): A savings account where the government adds a 25% bonus to your savings (up to certain limits) to help you buy your first home (or save for retirement).
  • Shared Ownership: You buy a share of a property (e.g., 25% to 75%) and pay rent on the rest. This reduces the mortgage amount needed.
  • Mortgage Guarantee Scheme (ended June 2025): This scheme encouraged lenders to offer 95% LTV mortgages by providing a government guarantee. While the core scheme has officially ended, 95% LTV mortgages are still widely available from lenders.
  • First Homes Scheme: Offers eligible first-time buyers new-build homes at a discount of 30-50% off the market price.
  • Help to Buy – Wales: A shared equity loan scheme for new-build homes in Wales (similar schemes existed in England but have largely closed).
  • Right to Buy / Right to Acquire: Allows eligible council or housing association tenants to buy their home at a discount.

 

Get Rate Quotes from Several Lenders (UK Context)

 

This is perhaps the most important piece of advice in the UK. Lenders have different affordability criteria and risk appetites, meaning the rate they offer you can vary significantly.

  • Shop Around: Always compare offers from multiple lenders – including high street banks, building societies, and challenger banks.
  • Use a Mortgage Broker: As mentioned, an independent “whole-of-market” mortgage broker is invaluable. They can access deals from a wide range of lenders and advise you on the best options for your specific situation. This is much more effective than applying to individual banks.
  • Impact of Searches: While multiple applications for a mortgage within a short timeframe (typically 30-90 days, but often aggregated in 45 days for lenders) are usually treated as a single “hard search” by credit agencies, it’s still best to let a broker guide you to the most suitable lenders rather than making multiple direct applications.
  • Online Lenders: Online-only lenders can sometimes offer competitive rates due to lower overheads, but it’s important to weigh this against the level of personal service you receive.
  • Relationship Discounts: Some UK banks may offer slightly preferential rates to existing customers with significant savings or other products with them. Always ask if this is the case.

In summary, for UK mortgage applicants: Prioritise building an excellent credit history (via on-time payments, low credit utilisation, and checking reports), save the largest deposit you can, consider shorter terms if affordable, understand the product fees, and most importantly, use a whole-of-market mortgage broker to compare a wide range of offers specific to your circumstances.